Florida Housing Recovery Driven by Foreign Investors
For potential home buyers like Nicole Kenaston, their dreams of owning a residence in Florida are being crushed. But what could be the issue? Kenaston, a 32 year old government employee claims that she has bid on no less than 5 houses over the last three years, but she keeps losing out to overseas investors who are willing to pay in cash. “I’ll find a place I like and can get financing for, and the all-cash buyers will come in and pay above market for it,” explains Kenaston. “It’s heartbreaking.”
Since the housing market recession started turning around, foreign investment in Florida real estate has been booming based on reports from the National Association of Realtors. International buyers, which accounted for 7.3 percent of statewide residential sales by dollar amount in 2007, accounted for 19 percent in the 12 months prior to June 2012 (the most recent data available).
Florida’s Market Ripe for International Investors
During this data period, Florida represented 25 percent of all U.S. residential property sales to international buyers. According to Peter Zalewski, owner of Condo Vultures, a Miami-based brokerage and consulting firm, the market seems reminiscent of 2003 or the early days of the housing market boom in South Florida.
Foreign investors have spent more than $50 billion on more than 250,000 properties in Florida over the last 3 years. 33 year old Bogota stockbroker, Daniel Arguelles, has purchased three homes in Miami since 2009. “You have cheap prices, a cheap dollar, and low interest rates. And that’s a scenario that you haven’t seen in about 50 years,” he explains. Like many other investors, Arguelles is renting out his properties.
Residential real estate in Nevada and Arizona has drawn significant overseas attention, but Florida has seen the greatest economic impact, despite having the highest rate of foreclosure in the nation. Property tax assessments in the counties with the largest influx of international cash have risen by an average of 4.1 percent this year, according to state records. That’s nearly double the rate seen in the rest of Florida.
What’s the Impact of All these Foreign Funds?
This influx of foreign funds has grown demand and sparked rising domestic prices, leading to all out bidding wars. In May, the average home prices were up 14 percent compared to a year ago, although they are still about 40 percent lower than the peak seen in 2006. Kenaston said the prices of a three-bedroom, single-family home have risen to 250,000 from $180,000 three years ago.
Developers are taking advantage of this market trend and looking build 150 condo buildings around South Florida (that’s an additional 20,000 units). “We do expect construction [in Florida] to pick up in 2014 and 2015, related to stronger international demand and more domestic demand,” stated Chris Lafakis, senior economist at Moody’s Analytics (MCO).
Home prices have jumped up another 10.2 percent in Sunny Isles Beach, a city that resides north of Miami, this year. Mayor Norman Edelcup is getting ready for the city’s 46.9 billion property tax base to double by 2018 following the completion of eight new luxury condominium towers.
With projects like these expected to be cropping up around Florida, you can expect some of that extra revenue to go to the construction of new parks, school expansions, and planning for future hurricanes. Over the next year, we shall have to keep an eye on how this influx of foreign investors plays out for property values around the state of Florida.